2. Things you need to know about this release

The starting point for the calculation of business demography data is the concept of active businesses in a reference year. These are defined as businesses that had either turnover or employment at any time during the reference period. New business registrations are referred to as business births and the birth rate is calculated using the number of births as a proportion of the active businesses.

Businesses that have ceased to trade (identified through de-registration of the administrative units, that is, Value Added Tax (VAT) and Pay as You Earn (PAYE)) are referred to as business deaths. The death rate is calculated using the number of deaths as a proportion of the active businesses.

The Eurostat and Organisation for Economic Co-operation and Development (OECD) manual on business demography recommends waiting for two years after the reference period to allow for reactivations before deaths figures are calculated. In this release, we estimated the number of reactivations and adjusted the data accordingly. This adjustment has been applied to all industries, by removing units from the death data. This can lead to different percentage adjustments at the lowest level of aggregation. Since the level of reactivations is subject to some uncertainty, the latest two years in the publication are considered to be provisional and subject to revision. Table 8 of the datasets shows the adjustments made to the death data for reactivations.

For the purpose of this release, the term “business” is used to represent an enterprise. An enterprise can be defined as the smallest combination of legal units (generally based on VAT and/or PAYE records) that is an organisational unit producing goods or services, which benefits from a certain degree of autonomy in decision-making, especially for the allocation of its current resources. An enterprise carries out one or more activities at one or more locations. An enterprise may also be a sole legal unit.

We recommend treating the data with caution when it is broken down to a lower geographical level. In recent years multiple registrations at a single postcode have caused large fluctuations in the data. A paper Multiple registrations at a single postcode has been produced regarding this issue.

Please note that all data are rounded to protect confidentiality. The figures in the tables are rounded individually therefore the sum of component items may be slightly different to the totals shown.

3. Business births and deaths in wider economic context

While the trend of increasing business death rates has continued since 2014, there is a sharp fall in the rate of business births in 2017, leading to a shrinking of the gap between the two rates (Figure 1). Despite this, the rate of business births has continued to exceed the rate of deaths. However, the gap in rates in 2017 is the smallest since 2012.

Potential uncertainty related to the UK’s future relationship with the EU could have been a cause for the sharp decline in the rate of business births in 2017. Evidence for a softening in business investment intention has been reported by the Bank of England’s agents.

The broader economy has also been slowing with gross domestic product (GDP) growing at 1.7% in 2017 compared with 1.8% in 2016. This is below the average growth of GDP of 2.1% from 2012 to 2017. The business investment component of GDP grew at 1.8% in 2017, below the 3.4% average growth from 2012 to 2017, but above the negative 0.2% growth in 2016. However, the labour market continued to show strength, with the employment rate at a record high of 75.0% in 2017 compared with 74.4% in 2016.

Depreciation of sterling following the EU referendum result, feeding into higher raw materials and import prices, could have also discouraged birth of new businesses and/or led to deaths of existing businesses. The Bank of England also increased the bank rate by 0.25 percentage points from 0.25% to 0.50% in November 2017. While an increase in the bank rate can deter the creation of smaller businesses because of an increase in cost of borrowing, the bank rate remained historically low and a small increase in the cost of borrowing may not have heavily influenced the birth and death rates of businesses.

Figure 1: Birth and death rates of businesses

UK, 2012 to 2017

Source: Office for National Statistics

Notes:

2013 – The growth in Pay As You Earn (PAYE) schemes coincided with the introduction of HM Revenue and Customs’ (HMRC’s) Real Time PAYE report system.

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There were approximately 2.93 million active businesses in the UK during 2017, an increase of 92,000 on 2016 (Table 1). Estimates for 2017 are available in greater geographical and industrial detail from the datasets.

Table 1: Business birth and death rates, UK, 2012 to 2017

Count to nearest thousand

Active

Births

Deaths

Count

Count

Rate (%)

Count

Rate (%)

2012

2,373

269

11.4

252

10.6

2013

2,449

346

14.1

237

9.7

2014

2,551

350

13.7

246

9.7

2015

2,699

383

14.3

282

10.4

2016

2,834

414

14.6

288

10.2

2017

2,926

382

13.1

357

12.2

Source: Office for National Statistics.

Notes:

1. The deaths counts provided in this table for 2016 and 2017 are provisional.
For more details please refer to section 2 of this statistical bulletin.

2. For the purpose of this bulletin the actives figure for 2015 has been recalculated using the new December to December reference period. This was in order to produce a revised death rate on the same basis.

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4. Which industries have the highest business births and deaths?

Following on from the spike in business births in 2016, the births in 2017 have returned to a level more consistent with previous years.

While the highest rate of business births occurred in transport and storage (including postal) at 18.5%, there was still a fall from the previous rate of 23% in 2016. One of the main contributors to this is freight transport by road, where business births grew substantially between 2012 and 2016 but started to decrease in 2017. There was a marked increase in the number of single employee limited companies in the transport industry, which accounted for 52% in 2012, rose to 65% in 2016 and decreased slightly to 63% in 2017.

The highest rate of business deaths was observed in the education sector at 18.8%, compared with a rate of 9.1% in 2016. Again, in the previous period, this industry showed a spike in the number of single employee limited companies. In 2012, these made up 56% of the overall births in education, which grew to 83% in 2016 and decreased to 63% in 2017. Another notable increase in business deaths was in the health industry and this again showed a similar pattern in relation to single employee limited companies.

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5. Which regions have the highest business births and deaths?

Within regions, the North West had the highest business birth rate at 15.9%, followed by London and Wales. The North West saw an increase of 78% between 2012 and 2017, with the transport and storage (including postal), and retail industries contributing the most to this increase. Scotland was the region to increase the least in the five years to 2017, by only 24%.

London was the region with the highest number of business births and deaths at 92,000 and 86,000 respectively.

The region with the highest business death rate was London at 14.2%, followed by the East at 12.8%. Since 2012, the health, and transport and storage (including postal) industries contributed the most to the business death increases in London, whereas the business deaths in the retail industry have decreased from 8.8% to 5.5%. Single employee limited businesses in London have increased by 18% since 2012.

When using this release please use lower geography data with caution. Factors like umbrella companies or virtual offices can cause large volatility to the data year-on-year. This affects mainly single employee limited businesses. Large numbers of businesses can be registered at a single address and therefore distort the geographical location and industry of the businesses, as well as business demography changes. This is because the classification and the location of the individual businesses reflects the management company or virtual office rather than the individual business.

Table 3: Business birth and death rates by region, UK, 2017

Counts given to the nearest thousand

Active

Births

Deaths

Count

Count

Rate (%)

Count

Rate (%)

North East

76

10

12.6

9

12.0

North West

298

47

15.9

36

12.2

Yorkshire and The Humber

198

23

11.4

24

12.1

East Midlands

190

23

11.9

23

12.0

West Midlands

230

31

13.4

26

11.4

East

295

37

12.5

38

12.8

London

608

92

15.2

86

14.2

South East

447

52

11.6

48

10.8

South West

239

25

10.6

30

12.6

Wales

103

14

13.7

11

10.4

Scotland

182

22

11.9

20

11.2

Northern Ireland

61

7

11.3

5

8.2

Total

2,926

382

13.1

357

12.2

Source: Office for National Statistics.

Notes:

1. The deaths counts provided in this table for 2017 are provisional. For more details please refer to section 2 of this statistical bulletin.

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6. The South West continues to have the highest five-year survival rate

The survival rates show the percentage of businesses that survived into 2017. In recent years, comparisons of survival rates between years have shown little change year-on-year.

The UK five-year survival rate for businesses born in 2012 and still active in 2017 was 43.2%. Since 2012, the region with the highest five-year survival rate has been the South West at 45.8%. In 2017, the industry with the highest five-year survival rate was health at 55%. By comparison, the UK one-year survival rate for businesses born in 2016 was 91.5%. The region with the highest survival rate was the East at 93.6% and the highest surviving industry was education at 96%. However, interestingly, in 2017 education was the industry with the highest business death rate.

The region with the lowest five-year survival rate was London at 39.3%. London has been the lowest region since the publication began in 2009. The lowest five-year survival rate for industry was in accommodation and food services at 34.2%. Comparing this with the one-year survival rates shows that the region with the lowest one-year survival rate was Northern Ireland at 88.5% and the lowest surviving industry was finance and insurance at 74.8%.

Figure 2: Survival rates of businesses born between 2012 and 2016

UK, 2012 to 2016

Source: Office for National Statistics

Notes:

There was a change in the reference period for the 2016 data. This will have had an effect on the one-year survival rates for businesses born in 2015. They will have had to survive for an extra month as the reference period for 2016 moved from November to December.

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7. Focus on employer demography

The employer business demography is an alternative measure of business demography based on businesses with at least one employee. It was set up to enable the collection of internationally comparable statistics. It is regulated by law in the European Statistical System and forms the most important data source for the entrepreneurial performance indicators.

Employer enterprise births include new enterprises with at least one employee as well as existing non-employer enterprises that have become employer enterprises. Deaths are enterprises that died with at least one employee, as well as enterprises that cease to employee staff.

The employer business birth rate, as a proportion of all active employer businesses, for 2017 was 13.4% and the employer business death rate for 2017 was 12.0%.

Breakdown by broad industry group

When looking at the breakdown by activity, the highest employer business birth rate for 2017 was recorded in transport and storage (including postal), at 18.7%, followed by business administration and support services at 18.3% (Table 4).

The highest employer business death rate for 2017 was recorded by education at 18.6%, followed by business administration and support services at 17.9%. Education was the industry where the death rate increased the most from 2016 to 2017, with a difference of 9.7 percentage points. Property had the largest percentage increase in deaths last year, but this year had the largest percentage decrease of 6.2 percentage points.

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Breakdown by region

Within the regions, the North West had the highest employer business birth rate at 16.3%, which is an increase of 0.6 percentage points compared with 2016. The South West had the lowest birth rate at 10.7%, which is a decrease of 3.6 percentage points compared with 2016 (Table 5).

The region with the highest death rate was London at 14.2%, which is broadly unchanged from 2016. Northern Ireland had the lowest death rate at 8%, which is a decrease of 1.1% compared with 2016.